The REDUCE Act — a piece of legislation that Congressman Tom Reed (R-N.Y.) is currently working on — mandates that colleges with endowments greater than $1 billion must use 25 percent of the returns on the endowment for financial aid. Reed said he hopes that this policy will help combat the rising college tuition and debt burdens that many young Americans face.
While Reed’s proposed legislation rightly seeks to tackle issues of affordability of and access to higher education, this policy would have damaging effects on colleges’ long-term funds. As administrator Joel Malina argued, “Taxing or otherwise tapping into an endowment’s principal investments might satisfy short-term demands — but would also cheat future generations of educational programs and financial aid that today’s endowment support.” If implemented, mandates like the REDUCE Act would also decrease the agency and flexibility that individual colleges have to steer their fiscal policy. Such hard-line requirements limits the conversation to increasing financial aid, confining the innovative approaches that colleges could take to combat rising high tuition costs.
Policymakers and college administrators cannot address the skyrocketing price tag of a college education increasing financial aid alone. From a rise in the number of college administrators to decreases in public funding for higher education, deeper issues at the national and individual college level underlie this problem. Colleges must look not only to increasing financial aid but also to reducing operational costs and the cost of tuition. Ironically, increases in financial aid also provide colleges with more leeway to hike up the price of tuition. Every year, Cornell administrators point to a rise in financial aid to justify annual hikes in tuition.
Reed’s strongest argument for the REDUCE Act is its potential ability to increase transparency and accountability in how colleges spend their endowments. While colleges often express a strong commitment to financial aid, actual policies — such as Cornell’s decision to switch from need-blind to need-aware financial aid for international students — brings that promise into question.
Ultimately, colleges should be allowed adequate room to implement innovative, cost-effective approaches towards higher education, and misguided policies such as Reed’s REDUCE Act would limit this ability. However, university administrators must also take advantage of this flexibility with responsibility and a clear commitment to making higher education more affordable for students.